LABCORP HOLDINGS INC. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS Laboratory Corporation of America ® Holdings together with its subsidiaries (the Company) has made in this report, and from time to time may otherwise make in its public filings, press releases and discussions by Company management, forward-looking statements concerning the Company’s operations, performance and financial condition, as well as its strategic objectives. Some of these forward-looking statements relate to future events and expectations and can be identified by the use of forward-looking words such as “believes”, “expects”, “may”, “will”, “should”, “seeks”, “approximately”, “intends”, “plans”, “estimates”, or “anticipates” or the negative of those words or other comparable terminology. Such forward-looking statements speak only as of the time they are made and are subject to various risks and uncertainties and the Company claims the protection afforded by the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those currently anticipated due to a number of factors in addition to those discussed elsewhere herein, including in the "Risk Factors" section of the Annual Report on Form 10-K, and in the Company’s other public filings, press releases, and discussions with Company management, including: 1. changes in government and third-party payer regulations, reimbursement, or coverage policies or other future reforms in the U.S. healthcare system (or in the interpretation of current regulations), new insurance products or payment systems, including state, regional or private insurance cooperatives (e.g., health insurance exchanges) affecting governmental and third-party coverage or reimbursement for commercial laboratory testing, including the impact of the U.S. Protecting Access to Medicare Act of 2014 (PAMA); 2. significant monetary damages, fines, penalties, assessments, refunds, repayments, damage to the Company’s reputation, unanticipated compliance expenditures, and/or exclusion or debarment from or ineligibility to participate in government programs, among other adverse consequences, arising from enforcement of anti-fraud and abuse laws and other laws applicable to the Company in jurisdictions in which the Company conducts business; 3. significant fines, penalties, costs, unanticipated compliance expenditures and/or damage to the Company’s reputation arising from the failure to comply with applicable privacy and security laws and regulations, including the U.S. Health Insurance Portability and Accountability Act of 1996, the U.S. Health Information Technology for Economic and Clinical Health Act, the European Union's General Data Protection Regulation and similar laws and regulations in jurisdictions in which the Company conducts business; 4. loss or suspension of a license or imposition of fines or penalties under, or future changes in, or interpretations of applicable licensing laws or regulations regarding the operation of clinical laboratories and the delivery of clinical laboratory test results, including, but not limited to, the U.S. Clinical Laboratory Improvement Act of 1967 and the U.S. Clinical Laboratory Improvement Amendments of 1988 and similar laws and regulations in jurisdictions in which the Company conducts business; 5. penalties or loss of license arising from the failure to comply with applicable occupational and workplace safety laws and regulations, including the U.S. Occupational Safety and Health Administration requirements, the U.S. Needlestick Safety and Prevention Act, and similar laws and regulations in jurisdictions in which the Company conducts business; 6. fines, unanticipated compliance expenditures, suspension of manufacturing, enforcement actions, damage to the Company’s reputation, injunctions, or criminal prosecution arising from failure to maintain compliance with current good manufacturing practice regulations and similar requirements of various regulatory agencies in jurisdictions in which the Company conducts business; 7. sanctions or other remedies, including fines, unanticipated compliance expenditures, enforcement actions, injunctions or criminal prosecution arising from failure to comply with the Animal Welfare Act or applicable national, state and local laws and regulations in jurisdictions in which the Company conducts business; 8. changes in testing guidelines or recommendations by government agencies, medical specialty societies and other authoritative bodies affecting the utilization of laboratory tests; 9. changes in applicable government regulations or policies affecting the approval, availability of, and the selling and marketing of diagnostic tests, drug development, or the conduct of drug development and medical device and diagnostic studies and trials, including regulations and policies of the U.S. Food and Drug Administration, the U.S. Department of Agriculture, the Medicine and Healthcare products Regulatory Agency in the United Kingdom (U.K.), the National Medical Products Administration in China, the Pharmaceutical and Medical Devices Agency in Japan, the European Medicines Agency and similar regulations and policies of agencies in other jurisdictions in which the Company conducts business; 21 INDEX 10. changes in government regulations or reimbursement pertaining to the biopharmaceutical and medical device and diagnostic industries, changes in reimbursement of biopharmaceutical products, or reduced spending on research and development by biopharmaceutical and medical device and diagnostic customers; 11. liabilities that result from the failure to comply with corporate governance requirements; 12. increased competition, including price competition, potential reduction in rates in response to price transparency and consumerism, competitive bidding and/or changes or reductions to fee schedules and competition from companies that do not comply with existing laws or regulations or otherwise disregard compliance standards in the industry; 13. changes in payer mix or payment structure or processes, including insurance carrier participation in health insurance exchanges, an increase in capitated reimbursement mechanisms, the impact of clearinghouses on the claims reimbursement process, the impact of a shift to consumer-driven health plans or plans carrying an increased level of member cost-sharing, and adverse changes in payer reimbursement or payer coverage policies (implemented directly or through a third-party utilization management organization) related to specific diagnostic tests, categories of testing or testing methodologies; 14. failure to retain or attract managed care organization (MCO) business as a result of changes in business models, including risk-based or network approaches, out-sourced laboratory network management or utilization management companies, or other changes in strategy or business models by MCOs; 15. failure to obtain and retain new customers, an unfavorable change in the mix of testing services ordered, or a reduction in tests ordered, specimens submitted or services requested by existing customers, and delays in payment from customers; 16. consolidation and convergence of customers, competitors, and suppliers, potentially causing material shifts in insourcing, utilization, pricing, reimbursement and supply chain access; 17. failure to effectively develop and deploy new systems, system modifications or enhancements required in response to evolving market and business needs; 18. customers choosing to insource services that are or could be purchased from the Company; 19. failure to identify, successfully close, and effectively integrate and/or manage acquisitions of new businesses or failure to maintain key customers and/or employees as a result of uncertainty surrounding the integration of acquisitions; 20. inability to achieve the expected benefits and synergies of newly-acquired businesses, including due to items not discovered in the due diligence process, and the impact on the Company's cash position, levels of indebtedness and stock price; 21. termination, loss, delay, reduction in scope or increased costs of contracts, including large contracts and multiple contracts; 22. liability arising from errors or omissions in the performance of testing services, contract research services, or other contractual arrangements; 23. changes or disruption in the provision or transportation of services or supplies provided by third parties; or their termination for failure to follow the Company's performance standards and requirements; 24. damage or disruption to the Company's facilities; 25. damage to the Company's reputation, loss of business, or other harm from acts of animal rights activists or potential harm and/or liability arising from animal research activities; 26. adverse results in litigation matters; 27. inability to attract and retain experienced and qualified personnel or the loss of significant personnel as a result of illness or otherwise; 28. failure to develop or acquire licenses for new or improved technologies, such as point-of-care testing, mobile health technologies, and digital pathology, or potential use of new technologies by customers and/or consumers to perform their own tests; 29. substantial costs arising from the inability to commercialize newly licensed tests or technologies or to obtain appropriate coverage or reimbursement for such tests; 30. failure to obtain, maintain and enforce intellectual property rights for protection of the Company's products and services and defend against challenges to those rights; 22 INDEX 31. scope, validity and enforceability of patents and other proprietary rights held by third parties that may impact the Company's ability to develop, perform, or market the Company's products or services or operate its business; 32. business interruption, receivable impairment, delays in cash collection impacting days sales outstanding, supply chain disruptions, increases in operating costs, or other impacts on the business due to natural disasters, including adverse weather, fires and earthquakes, political crises, including terrorism and war, public health crises and disease epidemics and pandemics, and other events outside of the Company's control; 33. discontinuation or recalls of existing testing products; 34. a failure in the Company's information technology systems, including with respect to testing turnaround time and billing processes, or the failure of the Company or its third-party suppliers and vendors to maintain the security of business information or systems or to protect against cybersecurity attacks such as denial of service attacks, malware, ransomware and computer viruses, or delays or failures in the development and implementation of the Company’s automation platforms, any of which could result in a negative effect on the Company’s performance of services, a loss of business or increased costs, damages to the Company’s reputation, significant litigation exposure, an inability to meet required financial reporting deadlines, or the failure to meet future regulatory or customer information technology, data security and connectivity requirements; 35. business interruption, increased costs, and other adverse effects on the Company's operations due to the unionization of employees, union strikes, work stoppages, general labor unrest or failure to comply with labor or employment laws; 36. failure to maintain the Company's days sales outstanding levels, cash collections (in light of increasing levels of patient responsibility), profitability and/or reimbursement arising from unfavorable changes in third-party payer policies, payment delays introduced by third party utilization management organizations, and increasing levels of patient payment responsibility; 37. impact on the Company's revenues, cash collections and the availability of credit for general liquidity or other financing needs arising from a significant deterioration in the economy or financial markets or in the Company's credit ratings by Standard & Poor's and/or Moody's; 38. failure to maintain the expected capital structure for the Company, including failure to maintain the Company's investment grade rating, or leverage ratio covenants under its revolving credit facility; 39. changes in reimbursement by foreign governments and foreign currency fluctuations; 40. inability to obtain certain billing information from physicians, resulting in increased costs and complexity, a temporary disruption in receipts and ongoing reductions in reimbursements and revenues; 41. expenses and risks associated with international operations, including, but not limited to, compliance with the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, other applicable anti-corruption laws and regulations, trade sanction laws and regulations, and economic, political, legal and other operational risks associated with foreign jurisdictions; 42. failure to achieve expected efficiencies and savings in connection with the Company's business process improvement initiatives; 43. changes in tax laws and regulations or changes in their interpretation; 44. global economic conditions and government and regulatory changes, including, but not limited to those arising from he U.K.'s exit from the European Union; and 45. effects, duration, and severity of the ongoing COVID-19 pandemic, including the impact on operations, personnel, supplies, liquidity, collections, and the actions the Company, or governments, have taken or may take in response, and damage to the Company's reputation or loss of business resulting from the perception of the Company's response to the COVID-19 pandemic, including the availability and accuracy and timeliness of delivery of any tests that the Company develops, collaborates on or provides for the detection of COVID-19, and the availability and timeliness of its drug development services. Except as may be required by applicable law, the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Given these uncertainties, one should not put undue reliance on any forward-looking statements. 23 INDEX GENERAL (dollars in millions, except per share data) Revenues for the three months ended March 31, 2021, were $4,161.5, an increase of 47.4% from $2,823.8 during the three months ended March 31, 2020. The increase in revenues was due to organic growth of 45.1%, acquisitions of 0.9%, and favorable foreign currency translation of 1.4%. The 45.1% increase in organic revenue includes a 32.9% contribution from COVID-19 Testing and a 12.2% increase in the Company's organic Base Business. Base Business includes the Company's business operations except for PCR and antibody COVID-19 testing (COVID-19 Testing). The Company defines organic growth as the increase in revenue excluding revenue from acquisitions for the first twelve months after the close of each acquisition. While the Company continues to see strong momentum across its operations, the Company’s board of directors and its management team believe that the Company’s value is not appropriately reflected in its current stock price. In March 2021, the Company announced that its board of directors and management had commenced a review of the Company’s structure and capital allocation strategy to ensure that it is best positioned to unlock shareholder value while the Company continues to support patients and customers around the world. The board of directors has engaged Goldman Sachs & Co. LLC as its financial advisor to support the process. There can be no assurances regarding the outcome or timing of the review process. The Company does not undertake any obligation to provide updates on this process until a conclusion is reached. RESULTS OF OPERATIONS (dollars in millions) Three months ended March 31, 2021, compared with three months ended March 31, 2020 Revenues Three Months Ended March 31, 2021 2020 Change Dx $ 2,757.8 $ 1,702.0 62.0 % DD 1,438.2 1,143.8 25.7 % Intercompany eliminations and other (34.5) (22.0) 56.8 % Total $ 4,161.5 $ 2,823.8 47.4 % The increase in revenues for the three months ended March 31, 2021, as compared with the corresponding period in 2020 was 47.4%. The increase in revenues was due to organic growth of 45.1%, acquisitions of 0.9%, and favorable foreign currency translation of 1.4%. The 45.1% increase in organic revenue includes the 32.9% contribution from COVID-19 Testing and a 12.2% increase in the Company's organic Base Business. Dx revenues for the quarter were $2,757.8, an increase of 62.0% compared to revenues of $1,702.0 in the first quarter of 2020. The increase in revenues was primarily due to organic growth of 60.8%, acquisitions of 0.9%, and favorable foreign currency translation of 0.4%. The 60.8% in organic revenue was due to a 54.5% contribution from COVID-19 Testing and a 6.3% increase in the Base Business, which includes the negative impact of weather of 2.0%. Total volume, measured by requisitions, increased by 27.3% as organic volume increased by 26.6% and acquisition volume contributed 0.7%. The organic volume growth was due to a 27.9% contribution from COVID-19 Testing, partially offset by a 1.3% reduction in revenue days. Price increased by 34.7% due to COVID-19 Testing of 26.6%, organic Base Business of 7.5%, favorable foreign currency translation of 0.4% and acquisitions of 0.2%. DD revenues for the first quarter were $1,438.2, an increase of 25.7% over revenues of $1,143.8 in the first quarter of 2020. The increase in revenues was primarily due to organic growth of 21.9%, acquisitions of 1.0%, and favorable foreign currency translation of 2.9%. The 21.9% increase in organic revenue was due to a 19.7% increase in the Base Business and a 2.2% contribution from COVID-19 Testing performed through its Central Laboratories business. While continuing to be negatively impacted by the pandemic, DD benefited from broad-based demand across all service lines, including COVID-19 vaccine and therapeutic work. Cost of Revenues Three Months Ended March 31, 2021 2020 Change Cost of revenues $ 2,562.5 $ 2,095.8 22.3 % Cost of revenues as a % of revenues 61.6 % 74.2 % Cost of revenues increased 22.3% during the three months ended March 31, 2021, as compared with the corresponding period in 2020. Cost of revenues as a percentage of revenues during the three months ended March 31, 2021, decreased to 24 INDEX 61.6% as compared to 74.2% in the corresponding period in 2020. This decrease was primarily due to the impact of COVID-19 Testing, organic Base Business growth, and acquisitions, partially offset by higher personnel costs. Selling, General and Administrative Expenses Three Months Ended March 31, 2021 2020 Change Selling, general and administrative expenses $ 429.8 $ 395.5 8.7 % Selling, general and administrative expenses as a % of revenues 10.3 % 14.0 % During the three months ended March 31, 2021, the Company incurred $5.6 of acquisition and divestiture related costs, $2.3 in COVID-related costs and $2.3 in management transition costs. In addition, the Company recorded $1.3 of non-capitalized costs associated with the implementation of a major system as part of its LaunchPad business process improvement initiative and $(2.4) related to miscellaneous other items. These items increased selling, general and administrative expenses by $9.1. During the three months ended March 31, 2020, the Company incurred $8.4 in acquisition and divestiture costs and $2.8 in management transition costs. In addition, the Company recorded $0.9 of non-capitalized costs associated with the implementation of a major system as part of its LaunchPad business process improvement initiative and reversed $0.6 related to miscellaneous other items. These items increased selling, general and administrative expenses by $11.9. Excluding these charges, selling, general and administrative expenses as a percentage of revenues were 10.1% and 13.5% during the three months ended March 31, 2021, and 2020, respectively, primarily due to leveraging the Company's infrastructure on higher revenue. Goodwill and Other Asset Impairments Three Months Ended March 31, 2021 2020 Change Goodwill and other asset impairments $ — $ 437.4 N/A During the three months ended March 31, 2020, the Company recorded goodwill and other asset impairment charges of $437.4, $426.4 within DD and $11.0 within Dx, representing 3.7% of the Company's total goodwill and intangible assets. The Company concluded that the fair value was less than carrying value for certain of its reporting units and recorded goodwill impairment of $418.7 in DD and $3.7 in Dx. The Company also recorded a charge of $2.7 for the impairment of a DD tradename, $7.3 for Dx software and $5.0 for the impairment of the DD floating rate secured note receivable due in 2022. There were no goodwill and other asset impairments for the three months ended March 31, 2021. Amortization of Intangibles and Other Assets Three Months Ended March 31, 2021 2020 Change Dx $ 28.1 $ 26.2 7.3 % DD 64.0 36.1 77.3 % Total amortization of intangibles and other assets $ 92.1 $ 62.3 47.8 % The increase in amortization of intangibles and other assets primarily reflects the impact of acquisitions occurring after March 31, 2020, and $29.2 of accelerated amortization related to the Covance trade name as a result a rebranding initiative, partially offset by lower amortization due to the impairment of intangible assets in 2020. Restructuring and Other Special Charges Three Months Ended March 31, 2021 2020 Change Restructuring and other charges $ 19.2 $ 25.4 (24.4) % During the three months ended March 31, 2021, the Company recorded net restructuring and other charges of $19.2: $7.5 within Dx and $11.7 within DD. The charges were comprised of $4.2 related to severance and other personnel costs and $15.1 in facility closures, lease terminations, and general integration activities. The charges were offset by the reversal of a previously established liability of $0.1 in unused facility-related costs. During the three months ended March 31, 2020, the Company recorded net restructuring and other special charges of $25.4: $8.1 within Dx and $17.3 within DD. The charges were comprised of $5.1 related to severance and other personnel costs, $4.7 for a DD lab facility impairment, and $15.8 in costs associated with facility closures, impairment of operating lease right-of-use assets, and general integration initiatives. The charges were offset by the reversal of previously established reserves of $0.2 in unused facility reserves. 25 INDEX Interest Expense Three Months Ended March 31, 2021 2020 Change Interest expense $ (48.5) $ (55.0) (11.8) % The decrease in interest expense for the three months ended March 31, 2021, as compared with the corresponding period in 2020, is primarily due to the repayment of the 4.625% senior notes and the 2019 Term Loan. Equity Method Income Three Months Ended March 31, 2021 2020 Change Equity method income, net $ 4.5 $ (6.6) (168.2) % Equity method income represents the Company's ownership share in joint venture partnerships along with equity investments in other companies in the health care industry. All of these partnerships and investments reside within Dx. The increase in income for the three months ended March 31, 2021, as compared with the corresponding period in 2020, was primarily due the write off or write down of certain of the Company's investments in 2020 primarily due to the negative impact of the COVID-19 global pandemic and increased profitability of the Company's joint ventures in 2021. Other, net Three Months Ended March 31, 2021 2020 Change Other, net $ 5.5 $ (16.1) (134.2) % The change in other, net for the three months ended March 31, 2021, as compared to the three months ended March 31, 2020, is primarily due to the write off or write down of certain of the Company's investments in 2020 primarily due to the negative impact of the COVID-19 global pandemic as compared to net investment gains in 2021. In addition, foreign currency transaction losses of $1.0 were recognized for the three months ended March 31, 2021, and losses of $2.8 were recognized in the corresponding period of 2020. Income Tax Expense Three Months Ended March 31, 2021 2020 Change Income tax expense $ 251.7 $ 49.2 411.6 % Income tax expense as a % of earnings before income taxes 24.6 % (18.4) % The 2021 tax rate was favorable to the 2020 tax rate due primarily to the 2020 impairment charges for which either no tax benefit was recorded (as they were not deductible) or the associated tax assets required a full valuation allowance. Operating Income by Segment Three Months Ended March 31, 2021 2020 Change Dx operating income $ 949.1 $ 205.2 $ 743.9 Dx operating margin 34.4 % 12.1 % 22.3 % DD operating income (loss) 156.4 (338.7) $ 495.1 DD operating margin 10.9 % (29.6) % 40.5 % General corporate expenses (47.6) (59.1) 11.5 Total operating income (loss) $ 1,057.9 $ (192.6) $ 1,250.5 Dx operating income was $949.1 for the three months ended March 31, 2021, an increase of $743.9 over operating income of $205.2 in the corresponding period of 2020, and Dx operating margin increased 2,230 basis points year-over-year. The increase was primarily due to the increase in COVID-19 Testing, organic Base Business growth and LaunchPad savings, partially offset by higher personnel costs. The Company remains on track to deliver approximately $200.0 of net savings from its three-year Dx LaunchPad initiative by the end of 2021. DD operating income was $156.4 for the three months ended March 31, 2021, an increase over operating loss of $338.7 in the corresponding period of 2020. The increase was primarily due to goodwill and other asset impairments in 2020 and in 2021 organic Base Business growth, COVID-19 Testing, and LaunchPad savings, partially offset by higher personnel costs. The Company continues to develop and execute new LaunchPad programs to support profitable growth in DD. General corporate expenses are comprised primarily of administrative services such as executive management, human resources, legal, finance, corporate affairs, and information technology. Corporate expenses were $47.6 for the three months 26 INDEX ended March 31, 2021, a decrease of $11.5 over corporate expenses of $59.1 in the corresponding period of 2020, primarily due to higher executive transition costs in 2020. LIQUIDITY AND CAPITAL RESOURCES (dollars and shares in millions) The Company's strong cash-generating ability and financial condition typically have provided ready access to capital markets. The Company's principal source of liquidity is operating cash flow, supplemented by proceeds from debt offerings. The Company's senior unsecured revolving credit facility is further discussed in Note 7 Debt to the Company's Condensed Consolidated Financial Statements. In summary, the Company's cash flows were as follows for the three months ended March 31, 2021, and 2020, respectively: Three Months Ended March 31, 2021 2020 Net cash provided by operating activities $ 1,157.6 $ 203.8 Net cash used for investing activities (132.4) (106.6) Net cash used for financing activities (450.1) (102.8) Effect of exchange rate changes on cash and cash equivalents (5.1) (8.3) Net increase (decrease) in cash and cash equivalents $ 570.0 $ (13.9) Cash and Cash Equivalents Cash and cash equivalents at March 31, 2021, and 2020, totaled $1,890.8 and $323.6, respectively. Cash and cash equivalents consist of highly liquid instruments, such as time deposits, commercial paper, and other money market investments, substantially all of which have original maturities of three months or less. Operating Activities During the three months ended March 31, 2021, the Company's operations provided $1,157.6 of cash as compared to $203.8 during the same period in 2020. The $953.8 increase in cash provided from operations in 2021 as compared with the corresponding 2020 period is primarily due to higher cash earnings and lower working capital. Investing Activities Net cash used for investing activities for the three months ended March 31, 2021, was $132.4 as compared to net cash used for investing activities of $106.6 for the three months ended March 31, 2020. The change in cash used for investing activities was primarily due to an increase in business acquisitions during the three months ended March 31, 2021 partially offset by lower capital expenditures. Capital expenditures were $95.4 and $106.6 for the three months ended March 31, 2021, and 2020, respectively. Financing Activities Net cash used for financing activities for the three months ended March 31, 2021, was $450.1 compared to $102.8 for the three months ended March 31, 2020. The change in cash flows from financing activities for the three months ended March 31, 2021, as compared to the three months ended March 31, 2020, were primarily due to repayment of the 2019 Term Loan in February 2021, partially offset by a $31.5 reduction in share repurchases. On April 30, 2021, the Company amended and restated its revolving credit facility. It consists of a five-year revolving facility in the principal amount of up to $1,000.0, with the option of increasing the facility by up to an additional $500.0 (which was previously $350.0), subject to the agreement of one or more new or existing lenders to provide such additional amounts and certain other customary conditions. The Company is required to pay a facility fee on the aggregate commitments under the revolving credit facility, at a per annum rate ranging from 0.100% to 0.225% (which was a per annum rate ranging from 0.100% to 0.25% prior to the amendment and restatement), depending on the Company’s debt ratings. Borrowings under the revolving credit facility will accrue interest at a per annum rate equal to, at the Company’s election, either (x) a LIBOR rate plus a margin ranging from 0.775% to 1.275% or (y) a base rate plus a margin ranging from 0% to 0.275%, in each case, depending on the Company’s debt ratings. Under the Company's revolving credit facility, the Company is subject to negative covenants limiting subsidiary indebtedness and certain other covenants typical for investment grade-rated borrowers and the Company is required to maintain certain leverage ratios. The Company was in compliance with all covenants under the revolving credit facility at March 31, 2021, and expects that it will remain in compliance with its existing debt covenants for the next twelve months. In February 2021, the Company fully repaid the remaining $375.0 of the 2019 Term Loan. At March 31, 2021, the Company had $1,890.8 of cash and $1,000.0 of available borrowings under its revolving credit facility, which does not mature until 2026. 27 INDEX As of March 31, 2021, the Company had outstanding authorization from the board of directors to purchase up to $731.5 of the Company's common stock. The repurchase authorization has no expiration date. Credit Ratings The Company’s investment grade debt ratings from Moody’s and from Standard and Poor’s (S&P) contribute to its ability to access capital markets. The Company’s expectation is that it will seek to maintain an investment grade debt rating regardless of what, if anything, results from the Company’s current review of its structure and capital allocation strategy.